📚 Learning Guide
Consumer Demand and Information Asymmetry
medium

Arrange the following concepts in the correct order that illustrates the impact of information asymmetry on consumer demand and the free rider problem.

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Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
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4
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Choose the Best Answer

A

Consumers hide true willingness to pay → B. Inefficient market outcomes occur → C. Public goods are underfunded → D. Free rider problem emerges

B

Consumers hide true willingness to pay → C. Free rider problem emerges → A. Inefficient market outcomes occur → D. Public goods are underfunded

C

Public goods are underfunded → A. Consumers hide true willingness to pay → D. Free rider problem emerges → B. Inefficient market outcomes occur

D

Free rider problem emerges → C. Inefficient market outcomes occur → A. Consumers hide true willingness to pay → B. Public goods are underfunded

Understanding the Answer

Let's break down why this is correct

Answer

Information asymmetry happens when one party has more or better information than the other, which can affect how consumers make choices. For example, if a company knows more about a product's quality than the consumer, the consumer might buy something that isn’t worth the price. This can lead to a decrease in consumer demand because people may feel unsure about what they are buying. Additionally, the free rider problem occurs when some people benefit from a resource without contributing to its cost, often seen in public goods. When consumers lack information, they may rely on others to take the risk of trying new products, leading to fewer investments in quality goods and services overall.

Detailed Explanation

When consumers don't share their true willingness to pay, it leads to a free rider problem. Other options are incorrect because This option suggests that market problems happen before the free rider issue; This option mixes up the order.

Key Concepts

Information Asymmetry
Consumer Demand
Free Rider Problem
Topic

Consumer Demand and Information Asymmetry

Difficulty

medium level question

Cognitive Level

understand

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